2016 Federal Budget Highlights Treasurer Scott Morrison’s 2016/17 Federal Budget delivers a budget deficit of $39.9 billion which is down from $41 billion in 2014/15, The deficit is projected to drop to $37.1 billion in 2016/17, $26.1 billion in 2017/18, $15.4 billion in 2018/19 and $6 billion in 2019/20 Mr Morrison’s first budget centred on the theme of ‘targeted’ and ‘responsible’ economic planning, which the government says is essential as Australia’s economy continues to transition away from the mining investment boom. In his budget speech, Morrison said the government’s economic plan is based on three key principles – encouraging jobs and growth, fixing elements of the tax system and continuing to ensure the government lives within its means to balance the budget and reduce the burden of long term debt. It targets growth tied to an ambitious national innovation and infrastructure plan aimed specifically at growth and jobs. With the federal election on July 2, the focus is to transition from a mining-led economy to a stronger, more diverse economy and set the country on a more sustainable footing to bring the budget back to balance. The budget provides benefits for businesses both big and small, plus there are significant changes to the superannuation sector that we will explore in this newsletter. Personal Taxation The government has announced a change to personal income tax rates to avoid ‘bracket creep’ where inflation pushes people’s salaries into higher income tax brackets without an increase in their spending power. From July 1, 2016 the threshold for the 32.5% tax rate will be increased from $80,000 to $87,000. In effect, half a million workers earning over $80,000 have been given a tax cut and a worker earning over $87,000 will be up to $315 better off every year. It has also confirmed the drop in the top marginal rate from 49% to 47% from 1 July 2017. From 1 July 2016, the following individual income tax rates will apply:         * This excludes the 2% Medicare Levy Importantly, the government has confirmed that the 2% Temporary Budget Repair Levy will expire at the end of the 2017 income year, returning the effective top marginal tax rate to 45%. The government has also announced that there will be no increase for indexation to the income thresholds for the Medicare Levy Surcharge and the Private Health Insurance Rebate for a further three years to 1 July 2021. REDUCTIONS IN CORPORATE TAX RATE As part of its 10 Year Enterprise Tax Plan, the Government announced a program to cut the company tax rate to 25% over the next 10 years. This measure will commence from July 1, 2016 when the government will cut the company tax rate to 27.5% for small companies with an annual aggregated turnover of less than $10 million. According to the budget papers, this will deliver a lower tax rate for around 870,000 companies that employ more than 3.4 million workers. The turnover threshold will then be progressively increased and ultimately all companies with a turnover of $1 billion or less should have a flat tax rate of 27.5% by the 2023/24 income year. In the 2024/25 income year, the company tax rate will be reduced to 27% and then be reduced progressively by 1 percentage point each year until it reaches 25% in the 2026/27 income year. These measures introduce the first significant company tax cuts in over a decade, with the last one occurring in 2001 under the Howard Government. Franking credits will be distributed in line with the rate of tax paid by the company.     INCREASING THE SMALL BUSINESS INCOME TAX OFFSET (‘SBITO’) From 1 July 2016, the government will increase the current 5% tax discount (referred to as the SBITO) to 8%. The discount in tax payable is currently available to an individual in receipt of income from an unincorporated small business entity (basically an entity with an aggregated turnover of less than $2 million) and applies to the income tax payable on the business income received from such an entity. The turnover threshold for access to the unincorporated small business income tax offset for individuals will increase from $2m to $5m and the discount will remain constant at 8% for eight years and will then increase to 10% in 2024/25, 13% in 2025/26 and 16% from 2026/27. The current discount cap of $1,000 per individual for each income year will remain unchanged.   MEDICARE LEVY LOW INCOME THRESHOLDS FOR 2015/16   For 2015/16, the Medicare Levy low income thresholds will be as follows: ACCESS To Small Business Tax Concessions As a boost for small businesses, the Government will extend access to a number of small business tax concessions by increasing the annual turnover eligibility threshold from $2m to $10m. These measures will apply from July 1, 2016 and they expand the number of small business entities able to access the concessions. From a tax planning perspective some small business owners may look at the timing of their expenditure with the start date being July 1, 2016. Under the announced measures, businesses with a turnover below $10m will now be able to access a range of existing small business tax concessions. The increase in the threshold will allow an additional 90,000 to 100,000 business entities access to concessions including: The lower company tax rates detailed in this newsletter Simplified depreciation rules, including the immediate tax deduction for assets costing less than $20,000 (up until 30 June 2017) Simplified trading stock rules that give businesses the option to avoid an end of year stocktake if the value of their stock has changed by less than $5,000. Simplified method for PAYG instalment payments The option to account for GST on a cash basis and apply the simplified method of GST instalments payments Immediate deduction for prepaid expenses Immediate deduction for professional expenses Fringe Benefits Tax concessions, including exemptions for car parking and work-related portable electronic devices (applicable from 1 April 2017). The current $2m turnover threshold … Continue reading ON THE MONEY – June 2016